Liberia: Second Review Under the Extended Credit Facility Arrangement and Request for Waiver of Nonobservance of Performance Criteria and Modification of a Performance Criteria
KEY ISSUES Context: Real GDP growth is projected to remain robust at 8.1 percent in 2013, led by mining, construction, and services. Inflation should reach 8.5 percent in December (y/y) due to higher international food prices and recent exchange rate pressures. The baseline outlook is positive, with new mining projects and plantations due to start operations in the coming years. Downside risks stem from delays in public investment, and uncertainty linked to the weak external environment. Accelerating implementation of the authorities’ poverty reduction strategy, the Agenda for Transformation, and in particular road and energy projects, is key to boosting growth in the non-mining sector and reduce poverty. Policies: Fiscal policy focuses on scaling-up public investment while maintaining debt sustainability and strengthening project execution capacity. Budget implementation has improved, but weaknesses in liquidity management have led to repeated spending overruns in FY2012 and FY2013. After delays in securing external financing, recent agreements bring debt close to the program limits. The monetary and exchange rate policy framework needs to be strengthened. In the highly dollarized setting, an increase in government spending in Liberian dollars led to exchange rate and inflation pressures. In the context of the recent launch of both T-bills and CBL bills, improved liquidity management and forecasting would be key steps towards establishing a monetary policy anchor. The authorities continue to make headway with their structural reform agenda. The Project Management Unit will help ensure readiness and quality of investment projects. Progress towards a Treasury Single Account continues, albeit with delays. The creation of the Liberia Revenue Authority will help strengthen tax administration. Program performance: Program performance has weakened relative to the previous review, as well as the former ECF-supported arrangement. Three out of six performance criteria (PCs) and two out of four indicative targets (ITs) were missed. Although deviations from two PCs were only minor, foreign reserves fell below the program floor by US$14 million, reflecting the CBL’s larger sales of U.S. dollars to mitigate exchange rate pressures, the launch of a new credit stimulus scheme, and high operational expenditures. Four out of eight structural benchmarks were met, including two with delays; three are proposed to be re-set, and one (on procurement plans) became a prior action. An update of the 2011 safeguards assessment has been completed.
Making Africa count
IN 2013 Nigeria’s GDP could increase by 40%, which would be impressive even by Africa’s recent bouncy growth standards. The rise will come not from a surge in economic activity but because the country is rejigging the way it calculates its accounts. At the moment, Nigeria’s GDP estimate, like many statistics in Africa, is wildly inaccurate. But the new figures may owe as much to political calculation as to hard-nosed statisticians. Governments in countries such as Nigeria and Ghana that want to make a bigger splash are likely to puff up their GDP, whereas those in countries such as Malawi that want to keep aid money flowing in from the West tend to keep it as low as possible.
To work out real GDP, government statisticians use the prices of goods and services from a “base year” as a reference. That lets them adjust for the effect of inflation in subsequent years. But as relative prices change, those calculations become less accurate. In a study of 47 African countries by Morten Jerven, an economic historian, only ten used base years less than a decade old. Nigeria’s real GDP is based on 1990 prices. It plans to update them to ones from 2008. Ghana did the same in 2010, revising its base year from 1996 to 2006. Its GDP shot up by 60%, propelling it overnight from being a poor to middle-income country, defined by the IMF as having a GDP per person of at least $1,026 a year.
Twenty years ago the GDPs of most African countries were underestimated—and were dismally low. Few governments minded. But the likes of Nigeria now want to tell tales of progress, not poverty. It wants to secure its status as Africa’s superpower. Its GDP is growing twice as fast as that of South Africa, the continent’s largest economy. “Rebasing” could see its economy swell from $273 billion to $382, just behind South Africa at $420 billion. If it were decided that an African country should get a permanent seat on the UN Security Council, the case for Nigeria, the continent’s most populous country, with a population of 150m, would be strengthened if it were to outpace South Africa economically. It could also bid for membership of the BRICS, a club of beefily emerging countries (Brazil, Russia, India, China and, arguably, South Africa).
Poor countries, however, want to keep the aid coming in. Take Malawi. Aid accounts for around a third of its budget. In 2005 its government brought in fertiliser subsidies. It reported a maize crop of 3.4m tonnes in 2006-7, up from 2.6m tonnes the year before. The aid lobby said this justified the subsidies and the budget support which enables them to be paid for.
But figures released in 2010, disputed by Malawi’s ministry of agriculture, suggest that the harvest was only 2.1m tonnes. If maize production had risen as much as claimed, Malawians should have have had a surplus of maize and prices should have dropped. That did not happen, says Mr Jerven. But the scheme’s vaunted success encouraged donors to keep coughing up.
Nigeria to become Africa’s biggest economy
In the coming month, Nigeria will finally complete a rebasing of its gross domestic product (GDP) data, which is likely to see Africa’s top oil-producing nation dethrone South Africa and become the continent’s largest economy in terms of its GDP size. In 2012, the World Bank estimated Nigeria’s economic output at $263bn and South Africa’s at $384bn. According to projections by economists, however, this rebasing exercise may see Nigeria’s GDP increase to somewhere between $384bn and $424bn, making it Africa’s new economic powerhouse.
Post 2008 statistics display an African Economy excelling at an exhilarating velocity, Overseas & domestic Investment Into the Continent is more evident then every. The perception of Africa as ‘the land of orruption’ is increasingly becoming just that. A Perception. Changes in the economic activity has beckoned domestic enterprise. Can the Africa Economy become a world leader or is that an unrealistic vision? ONLY TIME CAN TELL.
#economicgrowth #africaneconomy #domesticinvestment #enterprise
Making Microentrepreneurship Inclusive
Inclusive businesses are defined as businesses that explicitly include the poor in their value chains, as customers, suppliers or workers. These businesses could potentially benefit the poor through four different mechanisms: supply chains, employment, products/services and distribution channels. The market at the base of the pyramid is large and growing fast and people’s willingness to pay is potentially high because people living in villages and slums often pay more and get less than elsewhere – a phenomenon known as the “poverty penalty”.
Microenterprises currently fill this market, but will they be priced out of the market by international corporations or are they themselves the inclusive businesses we are looking for? Unless microenterprises grow into small and medium-sized businesses, the livelihood they produce may merely be one small step above poverty.
How should inclusive business models be designed to contribute to solving the problems of world poverty? Key questions include the model (should inclusive businesses be designed as social businesses?), management (how best to include the poor to ensure their fair representation?) and stakeholder and investor relations. Can what makes inclusive businesses successful be transferred to other businesses and countries? To what extent does the institutional and political environment shape the business?
Inclusive businesses face a number of specific challenges both internally and externally, as well as the low financial sustainability of many micro start-ups. Is there a role for governments to support the reach of micro- and medium-sized credit to help the growth of the more promising ideas and cushion the rest?